The Dow Reaches Record Highs Yet Again, but ExxonMobil and Chevron Fall Short

Monday marked the sixth time this year that the Dow Jones Industrials (DJINDICES: ^DJI) closed at a new all-time record high, with today's gain of 26 points proving sufficient to push the average to unprecedented heights. Strength from the Dow's industrial sector helped send stocks higher, but ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) were notable laggards, as the big-oil stocks both finished down today.

Fundamentally speaking, oil and natural gas were little changed Monday. Crude oil settled down $0.24 per barrel at $102.47 for the July futures contract, while natural gas actually gained ground, rising $0.07 to $4.61. None of those gains was significant enough to justify even a modest drop in Chevron and ExxonMobil on Monday.

Source: ExxonMobil.

Yet oil companies have started having to take larger risks in order to keep production levels up, and some investors aren't entirely comfortable with those risks. For instance, last week, ExxonMobil reupped its partnership with Russian oil giant Rosneft despite the threat of U.S. economic sanctions on Russia in connection with the situation in Ukraine. Exxon can defend such moves from a business standpoint, especially given the huge reserves that are available in Russia's Arctic. But Exxon runs the risk of maddening lawmakers who could impose tougher restrictions on the oil giant's domestic activities, and that in turn could make it harder for ExxonMobil to achieve its growth goals.

One huge question facing the two Dow Jones Industrials components is the extent to which unconventional production methods will take off worldwide. For instance, Chevron has invested billions in liquefied natural gas facilities in the western part of Australia, and those LNG export facilities should help Chevron market rich natural-gas reserves off the Australian coast to energy users throughout the Asia-Pacific region. But if unconventional production becomes available elsewhere, such as in China, then the benefits from LNG transport could fall dramatically. Moreover, with Russia having signed a long-term agreement to provide natural gas to China, Chevron could face major competition at an inopportune time.

Already, Dow investors seem to be writing off ExxonMobil and Chevron, assigning them very low earnings multiples despite their impressive dividend yields. Typically, low-multiple situations arise when investors question the sustainability of profits. So far, the impact of sluggish revenue on earnings has been minimal, but continuing weakness in production could put further pressure on profitability in the long run.

In a full economic recovery, the Dow's energy stocks typically see demand rise and help drive prices for energy products higher. The struggles that Chevron and ExxonMobil are facing now, though, show that even with the Dow Jones Industrials having performed well, the economy still isn't firing on all cylinders.

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